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How Wall Street Eats A Third Of Your Savings And Makes You Work Longer

In my post from a few weeks ago, I explained how Wall Street wants your balls - that is, if you compare retirement savings to balls, as I did in the second video
in that post.

Investment advisors and mutual funds take money (or balls) out of your account, somewhere around an average of 1.5% a year. But that's not the only cost to you, because you now have a smaller account, and you've missed out on the growth of the money that could have been in your account if it didn't go to a financial-services entity.

To illustrate this, let's assume you have $100,000 and you invest that money in the stock market via a mutual fund that charges 1.5% a year. Let's also assume that the stock market returns 8% a year for the next 20 years, but paying 1.5% knocks your return down to approximately 6.5%. (Yes, paying some mutual funds and investment advisors leads to market-beating returns, which I'll get to later.) Here's what the next two decades could look like:

Year

Value at the End of the Year

Annual Fees

Cumulative Fees

1

$106,500

$1,500

$1,500

2

$113,423

$1,598

$3,098

3

$120,795

$1,701

$4,799

4

$128,647

$1,812

$6,611

5

$137,009

$1,930

$8,541

6

$145,914

$2,055

$10,596

7

$155,399

$2,189

$12,785

8

$165,500

$2,331

$15,116

9

$176,257

$2,482

$17,598

10

$187,714

$2,644

$20,242

11

$199,915

$2,816

$23,058

12

$212,910

$2,999

$26,057

13

$226,749

$3,194

$29,251

14

$241,487

$3,401

$32,652

15

$257,184

$3,622

$36,274

16

$273,901

$3,858

$40,132

17

$291,705

$4,109

$44,241

18

$310,665

$4,376

$48,617

19

$330,859

$4,660

$53,277

20

$352,365

$4,963

$58,240

Your initial investment more than tripled in value. To quote the Schoolhouse Rock song about interjections, “Hooray!” But along the way, you paid a total of $58,240 in fees. (“Eeks!”) That 1.5% you paid each year ended up being worth 17% of your ultimate investment. (“Drat!”)